(a) The secondary market (stock markets, etc.) informs the prices in the primary market (stock issues, etc.). For example, when Facebook's IPO happens, its shares will be priced in part based on the stock prices of companies in related industries and in the broader market. Securities prices reflect not only the "intrinsic" value of the underlying enterprise/cashflow/whatever, but also complex second-order factors described by economic concepts like risk premia, liquidity, etc., that are predominately relational in nature.

(b) The primary market cannot exist without the secondary market because no one will buy into your IPO if they don't think they'll be able to turn around and sell the shares at some point. This is obviously the case for securities that generate no income (stocks that don't pay dividends, etc.), but it is also true of other securities for a slew reasons. This is the core of the the complex and amorphous notion of liquidity.

(c) By publicizing the value of the underlying assets, prices in the secondary market inform the wider world about the performance of the managers of those assets. Investors who believe those managers are doing a poor job can put up their money, throw the bums out, and bring in someone who will do the job properly.

All of these things support the efficient allocation of capital and ultimately shape the behavior of all economic actors. Capitalism requires that this mechanism works fairly well.

Don't get me wrong. I think stock market is a wonderful thing.

There are people that have money and people that need money and stock market is a great mechanism that tricks people who have money into parting with some of them temporarily or permanently and funding the people that need money.

Companies get money from selling their stock and use it to fund their actions.

People with money buy their stock and between themselves use their stock as casino tokens to legally gamble.

Without the gambling part there'd be much much less interest in giving money to the companies. People would have to believe that your company will grow. With stock market people just have to believe that there will be some suckers that will buy the stock for more money. (the thing you said in (b))

Most investors are in not to own a part of the great company but just for the gamble.

I just think that price of the token is mostly meaningless from the point of view of the companies that issued them. If you own 51% of the tokens you don't care how much people are pricing them because you own the actual company and you care mostly about the company itself. It's not like you could just dump your 51% on the market without making the sky fall.

Price has some importance if the company wants to get more money by issuing more tokens and it's also very important for various managers who got some of the tokens as their compensation. I'm not sure if that last one fact is a good thing. Managers should concentrate on their jobs of running the company not on making an impression that their company will do well in the future but you can't effectively ban them from playing. They would play anyway via proxies.

I believe that price of tokens does not say almost anything about companies condition. It only says things about random peoples opinion on the company future condition which I think correlates very weakly with actual current condition and the actual future condition.

Determining the price of token more precisely has no more value to people not involved in playing this game of buy/sell than precisely determining the value of WoW items.

Stock market gambling just switched from game played by people to game played also by bots. I think it's a nice thing that there's a place both for humans and bots in this game. I don't share the opinion that people that use bots are somehow cheaters. They just play they game the way they like and don't seem to be destroying it in the process.

The secondary market provides liquidity to investors who participated in the initial company stock issuance. Without a robust means for selling their shares at some point in the future, investors would be loathe to provide capital in the first place.

is there any evidence for this argument? would investment just stop alltogether, or would it change to support lots of smaller ventures instead of a few big ones?

Answer this question and you will need no evidence:

What would a stock be worth the day of the IPO if there was no way to sell it the day after the IPO?

Of course there is evidence: the stock market wasn't invented until 1999. Before 1999, noone dared buy stocks because they were afraid they couldn't sell it later. Its historical fact.

What does it mean to have "too much liquidity"? Liquidity is the cost of buying or selling. You're saying that it would be better if it cost more to sell out of a position, or to buy into a new one?

Well the question is what's the point of the stock market and financial sector if the only time investment is really happening is when shares are offered. The answer the parent suggested is that the stock market provides liquidity that is necessary for people to be willing to invest.

I believe that most stocks have far far more liquidity than is necessary for people to feel comfortable investing in them. More liquidity has very little value at this point.

It's a problem because thousands of bright minds are piped into the financial industry when they could be contributing much more to society.

I don't understand. "Liquidity" is another way of saying "cost of trading". You're saying, "most stocks cost so little to trade that people are already willing to trade them, so why upset the applecart for people who make a profit scalping off those trades"?

I'll say it very simply: People insist that more liquidity is a good thing. I'm saying it's not that good, and we have plenty of liquidity already. Companies that do HFT(and otherwise provide more liquidity) are part of the larger problem of financial companies that hire a lot of smart people and make them do work that has little value to society, but happens to be very profitable.

You're not saying it simply. You're using the word "liquidity" as if it's an abstraction. The equivalent term is "cost of trading". When you replace the word "liquidity" with "cost of trading", your assertion stops making sense; it becomes "trading is cheap enough already". Huh?

I think the point he is trying to make is that trading is cheap enough, and maybe smart people should focus their efforts on something other than making trading even cheaper.

I think a better restatement of what soup is trying to say would be "20ms latency HFT market makers provide insufficiently more value to the market than 200ms latency HFT market makers to justify the human capital involved in obtaining the lower latency"

I have no opinion on whether more liquidity and "lowering the cost of trading" is a net good or bad. On the one hand it means less profit for market makers and a slightly lower price to buy stocks. On the other it means more volatility when algorithms mess up.

HFT doesn't matter at all to long and medium term investors that actually provide the value in the stock market(which is providing capital to help grow companies).

Long and Medium term investors should be investing broadly across the entire market.

Just a decade ago you needed to buy into a mutual fund and pay sales loads and expense ratios over 1%.

Now, you can own an ETF containing a piece of each of the Fortune 500 companies for an expense ratio < 0.1% because spreads in those 500 companies are narrow and trade constantly.

Medium term and long term investors love HFT because it saves them 0.9% in yearly expenses. If you've got 100k invested in SPY instead of some Fidelity fund, HFT is saving you $900 a year.

> financial companies that hire a lot of smart people and make them do work that has little value to society

Would you rather I build a photo-sharing site? Chase tenure with esoteric publications?

Do you even know why I do HFT? I do it because it's intellectually stimulating and pays well, plus I work in a small firm of ten smart people and no corporate politics.

As for the value to society you don't believe I'm providing, my arbitraging makes it possible for products like ETFs to exist. Most retail investors would be best served with an index fund, and my work ultimately provides that service.

There's is nothing wrong with honest work, but if you are a highly skilled programmer and think that HFT is the most impactful/important work you can do. Then you aren't thinking hard enough.

And I think he's asking you: what should he do then since you're judging that the work he's doing isn't valuable? Impact and importance are judgement calls.

You're already making the judgement that the work he's doing isn't valuable, finish it up and judge what he should do.

How can you tell?

The stock market is economically important every time someone wants to invest in a company, while someone else wants to end his investment in that company. The bid and sell prices of outstanding stock of companies differ per day, per person.

I can think of two benefits beyond "gambling" on the price:

1. Dividends.

2. Stock buybacks.

to use your analogy. in the real world most managers of publically traded companies try to increase the price these are traded at.

meanwhile, people buy based on their expectation of future price.

So, this is a casino where the dealers are trying to make the chips worth more. It doesn't matter why, this is just reality (generally). But the dealers don't just deal chips all day - they spend real money in the real world, and loads of it. On sales, manufacturing, advertising, research and development, infrastructure, you name it. All to (again, generalizing) increase the price their chips are being traded at. (For various reasons they have incentive to do this, or if not incentive then at least philosophy/approach.)

Say you meet the dealer named (CEO of x). Now if you can convince him that doing y action in the real world will increase the price of his tokens, he might just do it.

Even if it means spending millions or billions of his company's money.

This is the status quo.

Now, what are the results of this status quo? Does it mean that companies will do whatever will increase their share price? No. Does it mean companies will do whatever they expect will increase their share price? No. Does it mean share price realistically reflects a company's investment in doing something to become financially or objectively or in some way convincingly "better"? No.

Nothing follows from this, but there are some things that almost follow.

One of them is that in the real world real money is being spent trying to get real customers, to get real innovations, and so on.

In a way, the precisely discovered price of a casino token is like a carrot on a stick. It points somewhere, (to stretch the analogy it points up or down), and does so as a result of the rider moving it.

In this case the 'rider' is investor opinion. (Alternatively, though false, you can assume that all information in the world is factored into the price, that the price is somehow 'efficient' with respect to all the information in the world about that company that's public. While ridiculous and false, this is/was a dominant or important academic model for a long time.)

What I'm getting at is that it's a lot simpler than just being tokens. There is a complex system here that you can draw some generalizations from. I mean, to take nothing else, just remember that when a company's "token" price gets too low, its investors will vote for an acquisition in cash by a bigger company in the same industry at a premium over its "token price". That would have a very real effect in the real world. It's just so much more complicated than you give it credit for. Is it good? Should we have it?

Well, all the recent private equity activity says, you know, not always. But there are some interesting things that happen when you put your company into the 'token world.' It's most certainly not just tokens.

> in the real world most managers of publically traded companies try to increase the price these are traded at.

Because they own some stock and/or because that's what in their formal/informal job description.

When I said "casino" and "tokens" I had in mind randomness of the game and that value of the stock is virtual value that humans assign to it in context of the game they play.

Apart from that rules are completely different from any game played at the casinos.

I don't think that anyone who makes decisions at Google actually does anything to increase their share price. And in my opinion that's because they get that in stock market there's a "funding part" and "gambling part" and what they were interested in was the funding (it's basically free money plus some transparency that builds up the trust of your customers). Gambling does not concern them.

> One of them is that in the real world real money is being spent trying to get real customers, to get real innovations, and so on.

Yes. But that real money comes only from the moment when company introduced its tokens into the casino. What gamblers do between themselves after that should not concern company in any practical way. Unless they did something stupid like putting more than 51% of their stock on the market.

Can company even take part in gambling of their own stocks? Isn't that insider trading?

> I mean, to take nothing else, just remember that when a company's "token" price gets too low, its investors will vote for an acquisition in cash by a bigger company in the same industry at a premium over its "token price". That would have a very real effect in the real world.

Yes. There are some points of contact between "funding part" and "gambling part" but they are in place just to spice up the game. I don't think they are healthy for the companies because running company is about physics and increasing market price is about fooling people into thinking that you do more than you actually do.